It may sound a bit ungrateful, especially coming from someone who invests in these things, but many early SaaS companies in many ways have been successful in spite of themselves. SaaS customers have had their pick of great software products, all available from the cloud, and without the long, tortured installation efforts of previous generations of software. On the back of these frictionless software deals, SaaS companies have been growing like mad, and often without any formal sales effort. But if they haven’t already, these up-and-to-the-right companies are about to hit a wall. The reason is that early deployments and usage do not necessarily translate into sustainable revenue growth.
In order for SaaS businesses to really scale and reach their full potential as industry leaders, they need a real and robust sales effort. That’s right, you need to build a sales team.
It won’t be easy. I won’t pretend that it is. But scaling sales, while expensive and culturally challenging to implement, changes the size of the potential opportunity. The big opportunity for SaaS companies is to drive adoption across the whole organization, which requires a centralized effort to redesign corporate processes, facilitate training and manage customer success. This is especially the case with tools that work best when used by everyone at a company, like CRM, human resources or accounting
Freemium is only part of the story
Before we dive in, there’s one thing I have to set straight: Freemium is a fantastic starting point for SaaS, but freemium is not the same as building a sales organization. Freemium is a product and marketing strategy designed to generate a massive base of users, which can be approached for a future sale. Freemium is all about seeding the market and establishing a platform for building a winning offering. The best SaaS companies use their free product to iterate and improve their offering with data and feedback. But even with an effective freemium go-to-market strategy, SaaS companies still need to think about augmenting with a sales organization. Start with freemium, but don’t end there.
The evolving role of the CIO
The CIO’s role is evolving in that for most SaaS applications, the department will drive the purchase. This is different from past generations of software, where on-premise installations and routine software upgrades required the CIO to hand-hold every buying decision. In a sense, SaaS has liberated the CIO to focus on longer-term strategic business issues, rather than worry about the next Oracle or SAP upgrade. The CIO will influence security, support and data protection policies, so understanding these up-front becomes a key part of the selling process.
The balance of influence between the departmental buyer and the CIO differs by application as well as by company—the more mission critical, secure, and integrated, the larger the CIO role. For infrastructure purchases, as an example, the CIO continues to be highly involved in the purchasing decision.
A framework for an effective SaaS sales organization
Designing a sales and marketing function targeted at the departmental buyer is key to creating long-term competitive advantage. I’ve seen many early SaaS companies reluctantly stumble into half-baked sales efforts, only to find a flattening in revenue and customer engagement.
To convince the skeptics, I’ve asked Dan Shapero at LinkedIn, one of the most successful SaaS companies of our time, to weigh in. Dan is the VP of Talent and Insights at LinkedIn and runs a 1,200-person sales organization. While most people think that LinkedIn sells itself with great product and no sales effort, nothing could be further from the truth. Here’s a framework that LinkedIn has developed to apply:
Organize around the buyer. LinkedIn has multiple business lines that work with three different corporate functions: talent, marketing and sales. These departments typically make discrete decisions, with independent budgets, so LinkedIn has different teams that focus on partnering with each function.
Distinguish between new account acquisition and account success. Two of the most important lessons at LinkedIn have been (1) successful clients buy more over time and (2) the process and expertise required to acquire a new customer is very different from nurturing that customer. As a result, there are separate and distinct teams, sales processes and measures of success for managing new and existing customers.
Land, then expand. With SaaS, customers can purchase on a small scale before going all in. Rather than focusing on landing huge deals, Linkedin has been better served by acquiring many smaller scale deals at clients with huge long-term potential. Albeit smaller, success with the initial deployment often results in tremendous upside in the second, third, fourth year of a client’s tenure. Expanding in a SaaS/freemium model is particularly effective because you not only can demonstrate success, but you can also pinpoint and size future demand based on who is using the technology for free.
Leverage inside sales for the mid-market. The creation of a robust, inside sales organization to serve clients over the phone, from regional hubs around the world, is a critical part of LinkedIn’s successful SaaS franchise. Inside sales reps close their own business and manage their own territory. The SaaS model enables the client to be engaged, sold, provisioned and serviced in a highly scalable way, without the need for an in-person visit.
Monitor customer engagement. SaaS provides incredible transparency into how actively engaged customers are with the product. Understanding where usage is strong and weak across customers allows LinkedIn to improve customer experience by deploying training resources proactively, offering targeted advice on best practice, and improving the product roadmap. Most enterprise vendors are flying blind when it comes to understanding the success of their customers, while SaaS companies have a fundamental information advantage.
When you are in the throes of viral adoption, it is not immediately intuitive to many SaaS companies to build out a sales organization. Right now, those of you in all the rapid growth SaaS companies might still be thinking, “Not us, we’ll just keep booking those inbound leads.” You’ll keep thinking that until the inbound stops. The paradox of great SaaS companies is that the more successful a SaaS company is with early deployments, the more challenging it becomes for that organization to recognize and embrace building a formal sales organization to address the needs of the enterprise buyer. That’s why I want every SaaS company to consider the SaaS Manifesto a call to arms. We are at a point in the maturity of SaaS where mature sales are important.
Up next: The SaaS Manifesto: Part 3 – the requirements for enterprise-wide SaaS adoption and deployment
Note: Part 2 of “The SaaS Manifesto” first ran in The Wall Street Journal‘s CIO Journal. You can read Part 1 here.